CHAPTER 1 ~ BACKGROUND of GLOBALIZATION ~ (updated 5/27/08) 

(1-A) ~ Historical Background ~

(1-B) ~ The Human Redundancy Issue ~

Go to List of References of this Literature Review ~
Go to Table of Contents of this Literature Review ~ 
Go to "Globalization: The Convergence Issue" ~ 
Go to Home Page of this Web Site ~ 

Historically, the dominant power tends to support globalization as a way to increase the ambit if its influence, expand trade and gain economic advantage, co-opt new citizens and possibly show the advantage of its own pax. This was the case with the Roman, British and now American-led globalizations (06M2). (in gci.html)

The original era of globalization lasted from 1880 to 1914 when WWI began. It harnessed the powers of global communications and swift transport to link the world economically. This first era was marked by "a dominant but financially overstretched global power, rival powers that defined themselves only in opposition to the dominant power, new regional powers with global aspirations, a proliferation of "failed states" and state-sponsored armed groups." Professor Neil Ferguson, history professor at Harvard University, notes numerous striking similarities between the current era of globalization and the first era of globalization, a few of which are listed above (05S1). The first era involved a struggle over access to India; the current era involved a struggle over access to Saudi Arabia (05S1). The anti-western armed organizations in the 19^th century followed the teaching of Karl Marx; those in the current period follow Osama bin Laden (05S1). (In Section (1-B) [1] of gci.html)

Susan B. Stanton, economist with A. Gary Shilling & Co, contends that only twice in history has free trade had such a powerful advocate - first when Britain reigned supreme in the mid-19^th century, and, second, in the decades following WWII when the US did. In each case, one country was in a peculiarly powerful position to pursue its own particular political and economic goals which free trade happened to suit. But even during these periods, undercurrents of protection were never far from the surface, and these protectionist sentiments easily broke through to return as the order of the day when pressures of competition and slow economic growth weakened the power of the world's leader. The increase in protectionism after 1870 did not prevent a sustained expansion of world trade. Early in the 19^th century, protectionism was the norm as many countries prohibited imports of manufactured goods. But then Britain took advantage of its "industrial head start" and began liberalizing its trade in search for markets and for its greatly increased production (Henry F. Myers, Wall Street Journal (11/22/93)).

Slavery was phased out of the British Empire on 8/1/1838 (from an op-ed by Adam Hochschild in NY Times (1/17/05).

On 1/17/1893, Hawaii's Monarchy was overthrown as a group of businessmen and sugar planters forced Queen Liliuokalini to abdicate (NY Times of around 1/18/05). Comments: In one Pacific island that produced spices, foreign business interests invaded the island and murdered the inhabitants.

For much of the 1950s and 60s, import-substituting industrialization (ISI) was seen as a way out of this deadlock. ISI was based on the idea that domestic investment and technological capabilities can be spurred on by providing home producers with (temporary) protection against imports. Whether and to what extent ISI helped or hindered development remains controversial. On the one hand, the so-called "'consensus view" emphasizes that ISI policies were at the heart of the problems that many of their adopters encountered in the subsequent decades when they opened up their economies (01O2) (OECD, 2001c). On the other hand, there are claims (97R2) (Rodrik); (02H5) (Hausmann and Rodrik) that ISI worked reasonably well, notably in raising domestic investment and productivity. It has been stressed that numerous economies in Latin America and the Near East recorded robust growth under ISI policy regimes (03S5).

With the end of WWI, trade policy went into reverse, and many nations stepped up border protection. The increase in tariffs was built on the notion that higher protection would help rebuild the domestic industries that had suffered or were destroyed during the war. The process started in Europe. France, Germany, Spain, Italy, Yugoslavia, Hungary, Czechoslovakia, Bulgaria, Romania, Belgium and the Netherlands all raised their import tariffs to levels comparable to those before the war. Even the UK, a free trade nation, declared that "new industries since 1915 would need careful nurturing and protection if foreign competition were not again to reduce Britain to a technological colony" (03S5).

US exports of grain and meat to Europe increased from US$68 million in 1870 to US$226 million in 1880 (03S5).

Trade between continents was boosted by the shift from sail to steamships, which resulted in a tremendous decline in transatlantic transportation costs as well as faster and more reliable connections. In 1870, a bushel of wheat sold for 60 cents in Chicago but for $1.20 in London. The difference was largely a result of high transportation costs from Chicago to London. With railroads and steamships, transport rates between Chicago and London fell to 10 cents a bushel between 1865 and 1900 and price differentials for wheat declined accordingly (96H1) (Henderson, Handy and Neff, 1996). (During 1850-1913, global overseas transportation capacity increased by more than 500%.) (03S5).

Stiglitz (02S5) notes that, in Latin America, economic growth during the 1990s (2.9%/ year) was slower than in the days of trade protectionism in the 1960s (about 5.4%/ year) (02H2). (In gci.html, Ed. 3)

From the 17th to 19th centuries, slavers imported an estimated 15 million Africans to the Americas (Christian Science Monitor, 5/3/01).

In the past, Americans competed in world trade on the basis of superior technology, rather than lower production costs. Today's competition is among technological equals whose competition is based on which nation has the lowest production costs, rather than which has the most superior technology (87T1).

A generation ago, most employees provided for their families entirely by using their job skills. Today, more that 50% of the population earns at least some income from investments (00M1).

Since 1945 the global market economy has effectively included about 800 million people living in 25 industrial countries, and another 400 million living a dozen or so less-developed satellite economies with large export sectors (David D. Hale, "The Coming Golden Age of Capitalism", Wall Street Journal (11/7/91)).

In addition to a billion people in China who suddenly are available for use with capital, half a billion people of the former Soviet Union have also suddenly become available (93Z2).

When the Smoot-Hawley tariffs were instituted (8 months after the stock market crash of 1929), imports were 4% of GDP, and 2/3 of that came in free. Thus Smoots-Hawley represented a marginal tax hike of 1.3$ on GDP- hardly a likely source of a 46% contraction of the US economy, 25% unemployment, and a wipe-out of 85% of stock values (00B1).

The World Bank predicted (Pittsburgh Post Gazette (6/30/95)) that by 2000, more than 90% of the world's labor force would be working in countries with strong links to the global economy. Comments: This prediction needs some interpretation. China, for example, could be said to have strong links to the global economy, but only about 20% of its citizens work in industries having anything to do with producing the sorts of goods involved in China's exports. The vast majority is still in agriculture, forestry, fisheries, grazing etc.- largely on a subsistence level, producing for local consumption. (China's net food imports are growing rapidly.)

As developing nations take in Western farm technology and farm surpluses, the 3 billion people still on the land in Asia, Africa and Latin America will head for the teeming Developing World cities (Pat Buchanan, Pittsburgh Post Gazette (9/26/94)). Comments: The implication here is apparently that the developing world has an essentially infinite supply of unskilled labor.

All four presidents on Mt. Rushmore were protectionists. The greatest era of industrial expansion in America, when US workers saw the greatest rise in their standard of living, was during 1860-1914 when America protected her industries behind a tariff wall. During that half-century, US exports rose 700%, while imports rose only 500%. By 1914 US workers were earning 50% more than the English and more than twice what Germans and French made. No nation has ever risen to preeminence through free trade. Britain before 1848, America and Germany from 1865-1914, Japan from 1950 on all practiced protectionism (94B1).

America became a free-trade nation after adoption of the Kennedy Round of tariff reductions in 1967, phased in over 5 years. Prior to eliminating these tariffs, the US had run trade surpluses for 74 consecutive years. Since 1973 the US has run a trade deficit almost every year. The real (inflation-adjusted) wages of American workers have declined 14% since 1970, despite steady increases in worker productivity (Jack Kelly, Pittsburgh Post Gazette (5/17/98)).

In 1993 the US Congress agreed to pass the North American Free Trade Agreement (NAFTA) only after two side-deals were worked out to correct perceived abuses to labor and the environment in Mexico. But now both supporters and opponents of NAFTA agree that the side-agreements have little impact, mainly because the mechanisms they created have almost no enforcement powers (Wall Street Journal (10/15/97)).

Go to Top and Chapter 1 Table of Contents ~ 
Go to List of References of this Literature Review ~
Go to Table of Contents of this Literature Review ~ 
Go to "Globalization: The Convergence Issue" ~ 
Go to Home Page of this Web Site ~ 

In England the late 18^th century was a time of rapid economic change. Social historian Karl Polyani has called it "a revolution of the rich against the poor" ( http://www.bbc.co.uk/history/state/monarchs_leaders/poverty_02.shtml). Poverty in Elizabethan England was not being driven by population growth as much as it was by the process of "land enclosure" which sought to push people off the land in order to enable the already rich to raise wool for the rapidly expanding international wool trade. As the BBC web site notes, "Land enclosure meant that the traditional open field system whereby individual peasant farmers could farm their own pieces of land was ended in favor of creating larger farming units which required fewer people to work on them. As the wool trade became increasingly popular, these units were often dedicated to rearing sheep. As a result, many people who had lived and worked in the countryside their whole lives found themselves without any means of support and, in many cases, evicted from their homes." In the "new economy" of sheep, most of the old tenant farmers were "surplus" or redundant, and across England their homes were literally pulled down or torched. As the "redundant poor" were pushed off the land, more and more poor people were crowded into cities and towns. "Poor taxes" on the wealthy increased by 75% between 1802-18 as the number of people made poor by the enclosure system rose to dizzying heights -- and with it, social unrest. (see: http://www.victorianweb.org/history/poorlaw/changes.html)

Students of American history might note some parallels between late 18th Century England and mid-20th Century America. As southern historian Will Ferris has noted, the "new economy" that began to appear in the American South after about 1935 was built on tractors and mechanical harvesters rather than mules and men. With the "death of the mule" millions of southern tenant farmers were pushed off the land and over the course of several decades millions of poor men and women poured into America's cities where many took factory jobs and others lived desperate lives on the edge of ruinous poverty. As in England in the early 19^th century, rising urban poverty in the US fueled a push for new laws to help the poor. These news laws, in turn, resulted in a rise in "poverty taxes" on the wealthy elite. Race and class pressures built up in America until they reached the explosive year of 1968 when riots broke out in dozens of American cities -- Washington, Chicago, Detroit, and over 100 other cities across the nation.

About 1.2 million children are sold into servitude ranging in form from domestic to sexual each year, a $10 billion trade (Wall Street Journal (7/30/03), reporting on a UNICEF report).

Go to Top of this Chapter 1 - Background
Go to List of References of this Literature Review ~
Go to Table of Contents of this Literature Review ~
Go to "Globalization: The Convergence Issue" ~ 
Go to Home Page of this Web Site ~